DraftKings Stock Could Struggle Near-Term, But Long-Term Opportunities Remain, Analysts Say

DraftKings stock has declined about 5% this year. (Michael Reaves/Getty Images)

Key Points

• DraftKings faces challenges including unfavorable sports outcomes, high promotional expenses, and a changing regulatory environment.
• Analysts from Benchmark, BTIG, and Guggenheim reduced price targets for DraftKings, with targets now ranging from $43 to $55.
• Despite near-term difficulties and increased competition from prediction markets, analysts maintained Buy ratings on DraftKings stock.

DraftKings stock may struggle in the months ahead as the online sports betting business remains difficult and competition intensifies, but that doesn’t mean it’s time to sell, several different analysts wrote on Thursday.

Benchmark analyst Mike Hickey cut his price target on DraftKings to $43 from $53 on Thursday. He wrote in a research note that while he is optimistic about the stock’s long-term growth opportunities because of the app’s popularity with sports betters and an expanding user base, “Q3 looks potentially challenging, with business pressured by the usual suspects: unfavorable sports outcomes and elevated promotional expense.”

DraftKings stock has declined 5.1% this year as several industry headwinds continue to spook investors. While the company reported better-than-expected earnings and revenue in its most recent quarterly report in August, monthly unique players fell short of estimates. There’s also a changing regulatory environment as states like Illinois implement higher taxes on licensed sportsbooks.

On top of those headwinds, there’s consistent uncertainty around the gambling environment as a whole. When gamblers have favorable outcomes, or win more than they expected, the more money companies like DraftKings have to dish out.

Despite this, Hickey maintained his Buy rating on the stock.

“We realize sentiment will likely be extremely challenged in the near term, but with the stock trading quarter to quarter, we would be opportunistic when the bleeding stops,” he added.

BTIG analyst Clark Lampen also cut his price target on the stock to $45 from $53 on Thursday, while Guggenheim analyst Curry Baker lowered his price target to $55 from $60. One concern these analysts highlight is increasing competition with prediction markets, like start-up company Kalshi, which reported a record volume of trading over the weekend.

Still, both analysts also maintained Buy ratings on DraftKings stock.

“DKNG shares have also been under pressure due to news around predictive markets—we believe DKNG will announce their path forward soon and views predictive markets as an opportunity,” Baker wrote in a research note.

Shares of DraftKings were down 0.6% Thursday to $34.94. The S&P 500 was flat.

Write to Angela Palumbo at angela.palumbo@dowjones.com